85 CBJ 366. A RULE FOR ALL REASONS: THE PROFESSIONAL SERVICES EXEMPTION TO LIABILITY UNDER CONNECTICUT'S UNFAIR TRADE PRACTICES ACT.

A RULE FOR ALL REASONS: THE PROFESSIONAL SERVICES EXEMPTION TO LIABILITY UNDER CONNECTICUT'S UNFAIR TRADE PRACTICES ACT

Connecticut Bar
JournalVolume 85, No. 4, Pg.
366December 2011A RULE FOR ALL REASONS: THE PROFESSIONAL SERVICES EXEMPTION TO
LIABILITY UNDER CONNECTICUT'S UNFAIR TRADE PRACTICES ACTBY SEMI KANDIL(fn*)Connecticut's Unfair Trade Practices Act ("CUTPA")(fn1) prohibits
any "person"(fn2) from engaging in "unfair methods of competition and unfair or
deceptive acts or practices in the conduct of any trade or commerce."(fn3) This
language is modeled on Section 5(a)(1) of the Federal Trade Commission ("FTC")
Act,(fn4) to which Connecticut's courts and Commissioner of Consumer Protection
are explicitly directed for interpretative guidance.(fn5) CUTPA, however,
differs from its federal analogue in several significant respects. One
important distinction is that CUTPA, unlike Section 5, provides a private right
of action to those it seeks to protect.(fn6) Another is that CUTPA creates a
comprehensive and flexible remedial scheme designed to deliver an appropriate
measure of relief for a broad array of economic harms.(fn7)

A curious jurisdictional phenomenon is rooted in another, less
obvious distinction: CUTPA's use of the terms "in the conduct of any trade or
commerce" in lieu of Section 5's "in or affecting commerce." CUTPA defines
"'[t]rade' and 'commerce'" as "the advertising, the sale or rent or lease, the
offering for sale or rent or lease, or the distribution of any services and any
property, tangible or intangible, real, personal or mixed, and any other
article, commodity, or thing of value in this state."(fn8) In contrast, the FTC
Act defines "[c]ommerce" as "commerce among the several States or with foreign
nations, or in any Territory of the United States or in the District of
Columbia, or between any such Territory and another, or between any such
Territory and any State or foreign nation, or between the District of Columbia
and any State or Territory or foreign nation."(fn9) As the language of the
latter suggests, the FTC Act's use of the terms "in or affecting commerce" is
"specifically designed . . . to make [the FTC's jurisdiction] coextensive with
the constitutional power of Congress under the Commerce Clause."(fn10) In
contrast, CUTPA, as state law, does not need to clear this jurisdictional
hurdle. Thus, CUTPA's "in the conduct of any trade or commerce" necessarily
cannot serve the same function as the FTC Act's "in or affecting
commerce."(fn11)

The inability to construe "trade or commerce" consistently with
Section 5 standards, as is mandated by CUTPA's declaration of legislative
intent, explains the inclusion of a specific definition for "trade or commerce"
in the statutory text. It is particularly shocking, then, to discover that
Connecticut's courts have largely ignored the details of that definition.
Indeed, despite the legislature's effort to reach a broad spectrum of economic
activity, the courts have formulated doctrines that point to the requirement
that conduct occur "in the conduct of any trade or commerce" as grounds to
restrict CUTPA's reach.(fn12) This article focuses on one such
doctrine: The professional services exemption to liability under CUTPA.

The professional services exemption distinguishes the
"professional" actions of some individuals and entities from their "business"
activities-immunizing the former from liability while the latter remain
exposed. The Connecticut Supreme Court first recognized the exemption in
1997,(fn13) and has since re-articulated its basic mechanics in six more
decisions.(fn14) A close look at these decisions, however, reveals fundamental
defects that cast doubt on the exemption's legitimacy and calls for careful
consideration of its value as a component of Connecticut's trade regulation
mechanism. This article endeavors to answer the call. Part I examines the
exemption's background, including its initial formulation, its evolution in
other jurisdictions, and its adoption in Connecticut. Part II examines some of
the practical problems that have arisen in Connecticut's exemption cases, while
Part III explains why those problems have arisen. Part IV explores the
exemption's relationship to CUTPA's statutory text. The article concludes by
summarizing the exemption's legacy in Connecticut and by encouraging
appropriate adjustment.

BACKGROUND

Rejection

The question of whether professional services constitute "trade
or commerce" can be traced back to a debate on the extent to which the "learned
professions" should be deemed subject to federal antitrust law. At one time,
the United States Supreme Court had suggested a functional distinction between
"trades" and "professions" for the purposes of federal liability. For instance,
the Court once observed that the concept of "trade" included "any occupation,
employment, or business . . . carried on for the purpose of profit, or gain, or
a livelihood," but excluded the "liberal arts" and the "learned
professions."(fn15) It also once stated that "personal effort, [not] related to
production, [was] not a subject of commerce."(fn16) Elsewhere, it specifically
suggested that "commerce" did not include the practice of law,(fn17) and that
the practice of medicine did not constitute a "trade."(fn18) Based on these
remarks, some Circuit Courts concluded that certain "learned professions" were
immune to antitrust liability.(fn19) They reasoned that "enhancing profit [was]
not the goal of professional activities," but rather, that these professions
sought "to provide services necessary to the community."(fn20) They did not,
however, extend this immunity to acts lying beyond the actual practice of
learned professions. In 1974, the Fourth Circuit described the distinction as
follows:The [learned professions] exemption is not a personal
immunity from prosecution, but is rather a recognition that the Sherman Act
prohibits only those restraints which are upon trade or commerce. The
occupation of one who violates the Sherman Act is irrelevent [sic]. If a group
of doctors conspire to obstruct the interstate sale of health insurance their
professional status would be no defense. On the other hand, if a group of
doctors conspire to restrain the practice of another doctor there is no Sherman
Act violation because that which is restrained (i.e., the
practice of a learned profession, medicine) is neither trade nor
commerce.(fn21)

This passage is significant for two reasons: First, because it
characterizes the commercial nature of a professional's conduct as dispositive
of immunity status. Specifically, the conduct giving rise to the claim must be
scrutinized to determine whether it constitutes: (a) professional
practice-i.e., activity that is part of a professional's
delivery of a service; or (b) business conduct-i.e.,
commercial activity that relates to, but is distinct from, a
professional's delivery of a service. This inquiry is precisely that mandated
to determine whether conduct is immune to CUTPA under the professional services
exemption.(fn22)

Second, the passage is significant because it is drawn from the
Fourth Circuit's overruled opinion in Goldfarb v. Virginia State
Bar.(fn23) There, the plaintiffs had tried to find a lawyer to examine
a land title for a house they intended to purchase, but were unable to find one
who would deviate from a minimum-fee schedule published by the Fairfax County
Bar Association and enforced by the Virginia State Bar.(fn24) They sued both
organizations, alleging that the minimum-fee schedule constituted price-fixing
in violation of Section 1 of the Sherman Act.(fn25) The Fourth Circuit
disagreed, explaining that only the legal profession itself was restrained by
the minimum-fee schedule, but not "trade"- i.e., commercial
activity by lawyers.(fn26) The Supreme Court reversed, unambiguously rejecting
the proposition that the public service aspect of professions warranted any
measure of immunity from antitrust law.(fn27) Rather, the Court reasoned that
"the activities of lawyers play an important part in commercial intercourse,
and . . . anticompetitive activities by lawyers may exert a restraint on
commerce."(fn28) Most significantly, the Court explained that a lawyer's
"examination of a land title is a service; the exchange of such a service for
money is 'commerce.'"(fn29) In other words, the Court took the position that
professional practice is, in fact, commerce.(fn30 )This simple
pronouncement necessarily foreclosed any further distinction between
professional practice and business conduct in assessing antitrust liability
under federal law. Accordingly, since Goldfarb, federal courts
have consistently held professionals subject to the Sherman and FTC Acts
without preliminarily characterizing the scrutinized conduct as
"commercial."(fn31)

B. Rebirth

After Goldfarb, some states harmonized their
trade regulation rules with federal law,(fn32) but others resisted.(fn33) Key
among the latter group is Frahm v. Urkovich,(fn34) a 1983
decision by the Appellate Court of Illinois. There, the plaintiffs had sued
their former attorney under the Illinois Consumer Fraud and Deceptive Business
Practices Act for losses caused by his professional negligence in real estate
transactions.(fn35) Their appeal focused on whether or not his legal services
constituted "trade or commerce" under Illinois law.(fn36) Looking to
Goldfarb, the Appellate...